China Bans ICO, Cryptocurrency Prices Drops

ICO Regulation in China Shoots Down Crypto Price

Caixin, a Chinese outlet recently reported a notice which have been issued by a working committee which looks after risks underlying the growing use of internet in financial spectrum. The notice clearly spelled out that new projects which aim to raise capital through Initial Coin Offers (ICO) will be banned.

ICO have been used as a premier fundraising tool of Blockchain based projects. Companies create digital tokens and issue the same which can either be kept away as a solid investment or used for buying goods or availing services. Such companies usually advertise about the software, platform and product being build and people can buy the same using cryptocurrencies such as Bitcoin and Ethereum. More than a billion dollars have been raised by start-ups through ICO platform this year comprising 2.62 biliion yuan or $400 million coming from the Chinese token sale alone. Start-ups can raise more funds following the ICO route with lesser background scrutiny in comparison to approaching big venture capital investors.

Initial coin offerings have been given the tag of being an unauthorised fundraising tool which is also the root cause behind various financial scams as per the Caixin report. The committee have ear marked 60 ICO platforms which needs to be inspected in-depth by the local bodies. A joint statement was issued by seven government bodies including China Securities Regulatory Commission, People’s Bank of China, China Insurance Regulatory Commission and China Banking Regulatory Commission who voiced worries about the growing malice in ICO platform. The statement issued also prohibited financial institutions and banks from engaging in any business deals related to ICO trading. For dealing with associated risks and protecting the interest of investors, both individuals and investors who have already engaged in cryptocurrency powered fundraising earlier need to make arrangements for returning the same. Certain Chinese ICO platforms such as BTCC have halted their services temporarily until further clarification is issued by the concerned authority.

The price of Bitcoin stumbled down the ladder by approximately 5% to about $4376.42 on Monday in the aftermath of this ICO banning announcement. Ethereum also went down by 12%.

Not only China but regulators in United States and Singapore have mentioned the risk of frauds and monery laundering involving ICO’s. On the other hand, cryptocurrency and financial markets experts have asked regulators to understand the crypto markets and ICO’s instead of banning them, in order to make the best use of technology-age.